Estimated components of the plan’s benefit payment
Active accrued 40%
Future wage inflation 10%
Future real wage growth 5%
The plan was changed to no longer offer inflation-adjusted payment to new retirees. (No effect to deferred)
Q: Using ALM approach, which asset class should have the highest weighting in the pension portfolio?
A. Nominal bond
C. Real-rate bonds
Justify with one reason.